Alleged 1.5 billion revenue fraud condoned by the new DGC: An Insight into the case
Relying on information provided by the Customs Central Investigation Bureau (CIB), Sri Lanka’s print media reported last week, that a large number of Toyota Prado Jeeps (over 189 numbers) had been detained at the Hambantota port by the Customs Central Investigation Directorate and that the respective importers had failed to declare the ‘TRUE TRANSACTION VALUE’ for Customs purposes. It was further reported that the Director General of Customs (DGC), Mr Chulananda Perera, has made an illegal order to release all these vehicles causing a colossal loss of over 1.5 billion rupees of revenue.
The objective of this piece of writing is to alert the readers with the factual information about this case, as it appears that people are being misinformed with falsified stories by the interested parties both in and out of the Customs service.
Agreement on implementation of Article vii of the GATT – 1994
Sri Lanka is a member of GATT (General Agreement on Tariffs and Trade) and member of the WTO since 1st Jan 1995 and has ratified the Article VII of the GATT concerning valuation of goods for Customs purposes.
Enacting laws in keeping with the GATT Valuation Agreement
The Article 12 of the said agreement requires all member nations to make laws and regulations setting out the content of the agreement. And in 1988, Sri Lanka adopted the said agreement in the Customs Ordinance (Schedule E).
The primary basis for Customs value under these regulations is the “transaction value” as defined in Article 1 of the said regulations, that is the price actually paid or payable for goods when sold for export to country of importation.
Strict penal sanctions against violations
The law also empowered the Director General of Customs (DGC) to take stern action against wrongdoers who defy the law for the purpose of evasion of the government revenue. This punitive power also includes the forfeiture of the goods and to impose treble the value of the goods (Section 52) as penalties/forfeitures.
Reservations under GATT Valuation Agreement
However, ‘in the interest of national economy’ the government of Sri Lanka has reserved its rights to maintain minimum value for any goods, as the government deems appropriate. However, the Article 10 of the Valuation regulations requires any such minimum value as determined by the DGC for any goods shall be published in the Gazette, which shall then be adopted to charge levies on such goods.
Reservation of right to determine minimum value for motor Vehicles
Then in Nov 2013, with the Gazette notification (1837/27 of 21st Nov 2013) issued by the Minister of Finance, motor vehicles were taken out of the application of Article VII of the GATT, with a minimum value determined by the DGC for motor vehicles. These values apparently ‘obtained from the manufactures of the motor vehicles, compelling the importers of motor vehicles to pay all levies on the basis of the minimum value so determined by the DGC and not on the transaction value (whether it was higher or lower of the minimum value) which has no impact at all on recover of levies on motor vehicles.
Serious flaws in the values determined by the Customs Valuation Committee
Subsequently serious flaws were discovered on the minimum values so determined by the Customs Valuation Committee resulting the removal of the Chairman of the Valuation Sub Committee. Then the DGC was compelled to obtain actual values from the vehicle manufactures, resulting in a substantial increase of the minimum value with no change whatsoever of the values of motor vehicles as determined by the manufacturers. As a result of this inevitable change, there were two different minimum values determined by the DGC for the same vehicle.
Enforcement Divisions’ attempt to find fault with the vehicle importers
When this discovery was made by the DGC, hundreds of vehicle had already been landed in the port of Hambantota. On these vehicles importers had paid levies on the minimum value originally determined by the DGC, which was changed only after these vehicles had been shipped on board. However, officers of the CIB, alleged that there was a fraud committed on the part of the importers, who had already complied with the minimum value criteria established for motor vehicles by the DGC and paid levies. One officer of the Customs CIB Directorate detained hundreds of Toyota Prado jeeps unloaded at the Hambantota port, alleging that the value declared for the Customs purposes was false and hence all vehicles are liable to be forfeited under the law (Section 52), in addition to pay a substantial penalty for ‘violation of law’.
This action clearly offended the law (minimum value regime) governing valuation of motor vehicles, as the new law permits no penal sanction once the importer pays levies on the minimum value so determined by the DGC, where whatever the transaction value declared would not affect the levy recovery process.
This point of law had been already clarified by the new chairman appointed to the Valuation Sub Committee, which revised the old bogus values determined by the same Committee headed by a different individual who was later removed.
The precisely clear decision on the point of law of the Valuation Sub Committee on the issue is reproduced below.
‘…Once value for motor vehicles are determined by the DGC, it shall be the Customs value for recovery of taxes (on motor vehicles) and when complied with (by the importers) no penal sanction as provided by the Customs Ordinance can be invoked (against the importers)…’
In this backdrop, a written submission (26th Oct 2015) was made by me to the Attorney General to ensure proper compliance with law relating to valuation of motor vehicles by the officers of Customs, without harassing the trade with arbitrary actions driven by reward oriented motivation by some officers, which has already been condemned and outlawed by the Supreme Court (Toyota Lanka v DGC SC Appeal 49/2008).
In the mean whilst, the vehicle importers association too made several representation to the Minister and the DGC, urging strict compliance with law, leaving no room for arbitrary actions initiated by certain officers for improper purposes.
Bold decision taken in keeping with the law while defying illegal demands
Finally, on 15th Dec 2015, strictly following the law governing valuation of motor vehicles for Customs purposes, and defying ‘popular demand by the officers’ for imposition of penalties on the importers, who had nothing to do with the absolutely flawed values determined by the Customs Valuation Sub Committee, the DGC, Mr Chulananda Perera, took a bold decision with an order made to release of all the vehicles seized by the CIB Directorate (held in Hambanotoda port for over 2 months) on which levies had been already paid on the minimum value so determined by Customs.
Understandably the decision of the DGC has effectively denied Custom Officers an opportunity to recover penalties from importers and to claim cash rewards (1/3 from proceeds recovered as penalties).
However, it is unfortunate that the officers of Customs tried to mislead the people that the DGC, Mr Chulananda Perera, was responsible for causing a substantial revenue loss of over 1.5 billion rupees to the government simply to please the Minister.